Lions Gate is on target with its move on home video and TV

Upcoming catalysts for Lions Gate are the theatrical releases of “Blair Witch” on Sept. 16 and “Deepwater Horizon” Sept. 30

Lions Gate/Courtesy Everett Collection

Lions Gate’s “Gods of Egypt” earned just $31.2 million in the U.S. and Canada

By

TreyWilliams

Reporter

Shares of Lions Gate Entertainment Corp. rose as much as 11% in intraday trading Friday, after the media and entertainment company’s fiscal first-quarter earnings came in well above expectations.

Thanks in large part to the performance of Lions Gate’s film and TV division, revenue rose more than 35% in the quarter to $554 million and earnings hit 1 cent, rather than showing a loss of 16 cents, as was expected by FactSet.

Lions Gate
US:LGF
said film revenue increased to $363 million in the quarter, buoyed by its home entertainment segment, which contributed $144 million. Home entertainment’s success was boosted by the releases of “Gods of Egypt,” which performed poorly at the box office, and “The Hunger Games: Mockingjay—Part 2,” wrote Piper Jaffray analyst Stan Meyers. Lions Gate’s revenue from theatrical film releases in the quarter contributed just $47 million.

A few upcoming catalysts for Lions Gate’s stock, according to Meyers, are the theatrical releases of “Blair Witch” on Sept. 16 and “Deepwater Horizon” Sept. 30.

“These films are tracking well and are early enough in the year to positively contribute on a full year basis,” Meyers, who rates Lions Gate overweight, wrote in a note to clients. “Management also highlighted it is moving quickly to begin the production of their next major [young-adult] franchise, ‘Chaos Walking,’ based on a best-selling book trilogy.”

Lions Gate has pulled its most recent young-adult franchise, “The Divergent Series,” from future theatrical releases after the third film in the franchise, “The Divergent Series: Allegiant,” performed below expectations. The series will instead continue on TV, where Lions Gate has had significant success.

The TV segment posted revenue of $249 million and is an area where analysts see potential moving forward. Lions Gate said it would buy premium cable network Starz for $4.4 billion in late June. While Pacific Crest analyst Evan Wingren wrote that he has some long-term margin concerns, in the near- to medium-term the combined company should deliver strong cash flow and has potential upside in over-the-top online streaming and TV production.

“We recommend owning Lions Gate,” Wingren, who rates the company overweight, wrote in a note to clients. “Given the momentum in Starz content and Lions Gate’s ability to create strong scripted programming, we believe that Starz could create a service that adds incremental revenue from one to two million subscribers of the first 12 to 24 months of the merger.”

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